What Happened to TerraUSD’s Bitcoin Reserves

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The cryptocurrency was worth $3 billion in stablecoins, helping maintain its $1 billion worth

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In about two days earlier this month, a non-profit foundation backing TeraUSD deployed Almost all of its bitcoin reserves In an effort to help it reclaim its typical level of $1, according to an analysis by cryptocurrency risk-management company, Elliptic Enterprises Ltd. Despite the massive deployment, TeraUSD deviated further from its intended value.

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Stablecoins are a part of the cryptocurrency ecosystem that has grown rapidly in recent years, making up about $160 billion of the $1.3 trillion crypto universe as of Monday. As the moniker implies, these assets are considered non-volatile cousins ​​of bitcoin, dogecoin and other digital assets that are prone to sharp swings.

Crypto traders and market observers have warned on social media in recent months that TeraUSD may deviate from its $1 peg. As an algorithmic stablecoin, it relies on it acting as a backstop to maintain the value of the stablecoin by incentivizing traders. If merchants’ willingness to hold the coins waned, some warned, it could lead to a wave of sales of both, known as a death spiral.

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To address those concerns, Do Kwon, a South Korean developer who created TerraUSD, co-founded the Luna Foundation Guard, a non-profit that aims to build large-scale reserves to act as a confidence backstop. has been accused of. Mr. Kwon said in March that the organization would buy Up to $10 Billion in Bitcoin and other digital assets. But the organization had not collected that much before the accident.

Mr. Kwon’s Company Terraform Labs Funded the foundation through a series of donations beginning in January. The Foundation Also Raised $1 Billion To Start Its Bitcoin Reserve sell that amount Luna’s sister token to cryptocurrency investment firms, including Jump Crypto and Three Arrows Capital, announced the deal in February.

As of May 7, the foundation has accumulated approximately 80,400 bitcoins, which were valued at about $3.5 billion at the time. In addition, it held approximately $50 million worth of two other stable coins, Tether and USD Coin. The issuers of both stablecoins have stated that their coins are backed by dollar assets that are easily sold for redemption. There was also the cryptocurrency Binance Coin and Avalanche in reserve.

The desire of traders to hold both assets diminished after a series of large withdrawals of the stablecoin from Anchor Protocol, a type of crypto bank where users deposited money to earn interest. This wave of selling escalated, causing TeraUSD to drop below $1 and Luna to spiral with it.

The Luna Foundation Guard said that on May 8, it started converting reserve assets into stablecoins as the price of TeraUSD started falling. In theory, selling bitcoin and other reserves could help stabilize TeraUSD by creating demand for the asset as a way to bolster trust. This is similar to how central banks protect their falling local currency by selling currencies issued by other countries and buying their own.

The foundation said that it transferred bitcoin reserves to another counterparty, allowing them to enter into larger trades with the foundation. In total, it sent more than 50,000 bitcoins, of which about 5,000 were returned for about 1.5 billion of the TeraUSD stablecoins. It sold all its Tether and USDC stablecoin reserves for 50 million TeraUSD.

When it failed to support the $1 peg, the foundation said that Terraform sold approximately 33,000 bitcoins on behalf of the foundation on May 10, in a final attempt to bring the stablecoin back to $1. In return it received about 1.1 billion TerraUSD.

To execute these trades, the foundation moved funds to two cryptocurrency exchanges: Gemini and Binance, according to an analysis by elliptical.

While large cryptocurrency exchanges were the only institutions in the ecosystem that could process the large trades that the foundation needed to do quickly, it also caused concern among traders as both TeraUSD and Luna spiraled. Unlike peer-to-peer transfers in crypto, specific trades executed within centralized exchanges do not appear on the public blockchain, the digital ledger that underlies crypto transactions.

Despite the foundation’s timeline, the inherent lack of transparency has led to investor concerns about how funds are used among some traders.

“We can see the movements on the blockchain, we can see that the money is transferred to these large centralized services. We do not know the motivations behind these transfers and whether they were transferring them to another actor or Were they transferring funds to their own accounts on these exchanges,” said Tom Robinson, co-founder of Elliptic.

The Luna Foundation Guard did not respond to Businesshala’s requests for interviews. Mr. Kwon did not respond to requests for comment. The foundation said earlier this month that it still had about $106 million in assets that it would use to compensate the remaining holders of TeraUSD, along with the smallest holders. It did not explain how this compensation might work.

Credit: www.Businesshala.com /

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